Yesterday, I bought some more Canadian Income Funds, also called Royalty Trusts or Canroys. As I mentioned before, I recently refinanced a property and I managed to pull some money out (totally tax-free!).
Rather than spend the money on an SUV or a big-screen TV, I opted to divide the money into 3 parts. The first 1/3rd went towards replenishing my emergency fund which was drawn down by vacancies in my rental properties. The second 1/3rd went towards future investments in summer just in case there's a pullback in the stock market and the last 1/3rd went to building up my passive cash-flow.
Long time readers will realize that I haven't made any effort display my net worth or any goals of net worth. That's because I feel its a meaningless number. If I had a $1 million dollar net worth and it only generated $25,000 a year in income (like Cd's did a few years ago) that's pretty sad. On the other hand, if I owned a $1,000,000 car-wash that generated $125,000 that's pretty significant.
My goal is to generate passive income. Its your passive income that provides financial independence, not your net worth. If you have $3,000/month through various passive income streams, you've got your basic food and shelter taken care of and you won't starve if you lose your job. That is my short term goal. My longer term goal is generate $10,000/month in passive income so I can travel the world without worrying (or working).
I'm currently not even at 50% of my $3,000/month goal so at least 1/3rd of all future investments must take me towards that goal. That's why I bought some Canroys yesterday. I bought Harvest Energy (HTE) and Canetic Resources(CNE). They generate revenue from oil and gas production and refining. The noteworthy part is that they payout around 12% dividend per year. Since the selling of oil and gas leads to a depletion of reserves, its important that they keep some of their revenue for future acquisition of new properties and for drilling new wells. Both of them have a payout ratio of under 80% which isn't bad considering they have proven and probable reserve lifespans of 9.5 years.
There are Canroys with lifespans of 6-7 years and payout ratios of 95% that yield 15% but I'm suspicious of their longterm viability. These two seem like pretty safe bets. If oil prices rise there's a chance of increased payout and also capital appreciation. If not, I'm still getting my 12% yield.
The only issue I have is that the Canadian Government takes its 15% tax straight out of my account. But even considering for that, my yield is still just over 10%. Besides, I get a US tax credit for that amount, so its not a total loss.
I also bought some units in Prism Income Fund(QSR.UN) which owns and operates nearly 500 fast-food franchises in Canada (Taco Bell, KFC, Long John Silver and Pizza Hut). Their stock has been pretty stable compared to other Canroys following the whole Taxation issue. Its also currently yielding 12% and while I don't expect much capital appreciation, I don't expect it to drop in value or its dividend to fluctuate with the price of oil and gas.
So now I'm one step closer to my goal of $3,000 in passive income. This brings my total passive income from Canroys to $300 per month. I'm also getting $300 from a loan to a developer at 2% per month. And I average around $300/month from my various online ventures. (Even though my online ventures aren't passive, I enjoy pursuing them and I have geographic independence. Thats why I'm counting it).I'm also making around $150/month from my direct oil and gas drilling investments, so I'm almost 1/3rd of the way to my goal!
When I get the money back from the developer, it'll be redeployed at a much lower rate. But I expect the cash flow from the direct oil drilling program to increase enough to cover this short-fall.
Is It A Good Time To Invest In Real Estate?
Even though I've experienced phenomenal returns in real estate, I think its getting exceedingly difficult to invest in that asset class.
If you're flipping houses and you have a good buying and selling system in place, then the story is different, but thats probably your full-time job. If you a part-time passive investors like me, then now might not be the best time to invest.
According to my own experiences, trying to refinance a loan has become a lot more difficult than it was 2 years ago. This tells me that the pool of potential buyers has dried up. This is due to the tightening of lending standards as a result of the subprime meltdown. Common sense tells me that this is likely to get a lot worse over the next few years. As a result, buyers of investment homes now may not find it easy to sell the home in a few years.
According to real estate research consultant John Burns, many places in the US still might fall another 30%. Popular places to invest like Miami, Los Angeles, San Diego and Orlando need to drop another 28-40% to become affordable. When prices are rising, people tend to think they're getting left out and so they tend to push prices way beyond fair value. On the flip side, when prices are dropping, people think they've gotten a raw deal and just want out at any price. This usually pushes prices far below what is a fair value. At the bottom of the cycle, you can usually buy property that will cashflow and provide excellent cash-on-cash returns.
There's no urgency in investing right now. Things are probably going to get a lot worse before they get any better. I feel for most people, sitting on the sidelines waiting for a few years is a good idea. As Warren Buffett says, patience is an investors biggest virtue. As loans become more difficult to get, rents should increase and prices will drop. This will compensate for any increase in interest rates that may occur (although I personally think that interest rates are going down before they start going up).
But that doesn't mean you should write off real estate completely. Now is a good time to learn as much as you can so you hit the ground running when the opportunity presents itself. Also, you might find a stellar deal once in a while and if you're well prepared, you can make a pretty penny. It may be more difficult to make money in a down market, but it doesn't mean that its impossible!
I have personally lightened my real estate investments in favor of more commodity-based investments, but I haven't completely gotten rid of everything.
I think keeping a few good real estate investments long term is a good way create wealth. But now is definitely not a good time to buy 95-100% financed properties that have no chance in hell of cashflowing with a 3 year adjustable mortgage in a place like San Diego or Miami!
UPDATE: This post was written in June 2007. Since then property prices have fallen tremendously. Check out these prices on investment property:
If you're flipping houses and you have a good buying and selling system in place, then the story is different, but thats probably your full-time job. If you a part-time passive investors like me, then now might not be the best time to invest.
According to my own experiences, trying to refinance a loan has become a lot more difficult than it was 2 years ago. This tells me that the pool of potential buyers has dried up. This is due to the tightening of lending standards as a result of the subprime meltdown. Common sense tells me that this is likely to get a lot worse over the next few years. As a result, buyers of investment homes now may not find it easy to sell the home in a few years.
According to real estate research consultant John Burns, many places in the US still might fall another 30%. Popular places to invest like Miami, Los Angeles, San Diego and Orlando need to drop another 28-40% to become affordable. When prices are rising, people tend to think they're getting left out and so they tend to push prices way beyond fair value. On the flip side, when prices are dropping, people think they've gotten a raw deal and just want out at any price. This usually pushes prices far below what is a fair value. At the bottom of the cycle, you can usually buy property that will cashflow and provide excellent cash-on-cash returns.
There's no urgency in investing right now. Things are probably going to get a lot worse before they get any better. I feel for most people, sitting on the sidelines waiting for a few years is a good idea. As Warren Buffett says, patience is an investors biggest virtue. As loans become more difficult to get, rents should increase and prices will drop. This will compensate for any increase in interest rates that may occur (although I personally think that interest rates are going down before they start going up).
But that doesn't mean you should write off real estate completely. Now is a good time to learn as much as you can so you hit the ground running when the opportunity presents itself. Also, you might find a stellar deal once in a while and if you're well prepared, you can make a pretty penny. It may be more difficult to make money in a down market, but it doesn't mean that its impossible!
I have personally lightened my real estate investments in favor of more commodity-based investments, but I haven't completely gotten rid of everything.
I think keeping a few good real estate investments long term is a good way create wealth. But now is definitely not a good time to buy 95-100% financed properties that have no chance in hell of cashflowing with a 3 year adjustable mortgage in a place like San Diego or Miami!
UPDATE: This post was written in June 2007. Since then property prices have fallen tremendously. Check out these prices on investment property:
How Capitalism Really Works
I was talking to another investor about the BlackStone IPO. He was planning on investing and wanted to know my opinion. My only opinion is that the ticker should have been BS instead of BX!
Why is that? Because its a fraud. The only reason Stephen Schwarzman is taking the company public is because the market is willing to pay much more than the company is worth. The company doesn't make any nor does it really provide any services. Here's an interesting story about what these private-equity firms really do.
Why is that? Because its a fraud. The only reason Stephen Schwarzman is taking the company public is because the market is willing to pay much more than the company is worth. The company doesn't make any nor does it really provide any services. Here's an interesting story about what these private-equity firms really do.
The "New Capitalism" is not only more global than the older form, it is also more focused on finance. Imagine a man who makes his living digging ditches. He may hire himself out at a daily rate of, say, $25. The old capitalists would have paid no attention to him - he is just one of millions of small entrepreneurs getting by in life.
But today's financial hustlers will spot the opportunity. Let's take him public, they will say. We'll raise his daily rate to $30...pay him his $25...and the rest will be our "profit." We'll sell shares to the public at a P/E of 20...let's see, 20 x $5 x 250 days per year = $25,000. All of a sudden, the ditch digger has a capital value of $25,000. Then, they borrow $20,000 from a hedge fund...and pay it to themselves for structuring the deal. Now, the hustler has $20,000 in his pocket, the hedge fund has a high-yield bond worth $20,000; the shareholders have $25,000 worth of stock; and the poor man is still digging his ditches.
Then, an even more ambitious wheeler-dealer will come along and decide to "roll up" the whole industry - bringing the ditch diggers together into a multi-national consortium. Now they can all do cross-border transactions...including derivatives. And now ditch-digging is a major business, suitable for large investors...with more investment coverage and a higher P/E ratio. Soon all the world's banks, pension funds, insurance companies, and hedge funds have some of the ditch digging paper - debt or equity - and billions in fees and commissions have been squeezed out of
ditches by the financial industry.
That, patient reader, is the way (the world-over) that industries and assets are now being bought, sold, refinanced, leveraged, re-jigged and resold. In the old days, companies went to investors or to banks for capital and cultivated a relationship with them that was long and fruitful. Now, it's all wham-bam-thank-you-ma'am capitalism. Inquiring capitalists now only want to know one thing - how fast can we do this deal? How many points can we get out of it and how much leverage can we get? And whom can we dump it on, when we're done?
Earn $25 Referral Fee
Prosper.com has now started giving out $25 referral fees if you sign up through an affiliate link!
It doesn't matter whether you're a lender or a borrower, you still get the $25. Don't know when it started but it ends on August 31st 2007.
Great time to join if you already haven't. I've been lending out money at around 18%.
It doesn't matter whether you're a lender or a borrower, you still get the $25. Don't know when it started but it ends on August 31st 2007.
Great time to join if you already haven't. I've been lending out money at around 18%.
Housing Still Sucks!
According to Chris Gaffney of Everbank.com, who's Japanese REIT CD I recommend, said today
Sounds like bad news for the housing market and for the US dollar too. I'm a big fan of investing in real estate, but extreme caution needs to be exercised right now. Don't be in a hurry to buy property just because you read some book or attended some seminar. Especially in places like Calfornia, Florida, Nevada, Michigan, Illionois and Ohio which lead the nation in foreclosures.
I continue to own homes in Indianapolis, Indiana I'm not concerned because it has really good job growth. So its not that I'm soured on real estate investing, its just that the easy money is long gone and its time to be very careful. Real estate won't be as forgiving as it was 5 years ago if you by wrong in this cycle.
The markets seem to be waking up to the fact that the housing market is no where near the bottom. Borrowers are being squeezed by the treasury markets recent sell off which has increased 30-year mortgage rates the most since 2004. The National Median Home price is poised for its first annual decline since the Great Depression. An executive at the giant bond fund PIMCO said it best: "It's a blood bath. We're talking about a two to three year downturn that will take a whole host of characters with it, from job creation to consumer confidence. Eventually it will take the stock markets and corporate profit." The US housing market has provided the economy with support through the creation of wealth and the seemingly endless ATM of price increases. The recent increase in yields, along with the sub prime mortgage meltdown is going to kick this support right out from under the economy, and the dollar is going to be drug down along with it.
Sounds like bad news for the housing market and for the US dollar too. I'm a big fan of investing in real estate, but extreme caution needs to be exercised right now. Don't be in a hurry to buy property just because you read some book or attended some seminar. Especially in places like Calfornia, Florida, Nevada, Michigan, Illionois and Ohio which lead the nation in foreclosures.
I continue to own homes in Indianapolis, Indiana I'm not concerned because it has really good job growth. So its not that I'm soured on real estate investing, its just that the easy money is long gone and its time to be very careful. Real estate won't be as forgiving as it was 5 years ago if you by wrong in this cycle.
More on Synthetic Long Positions
As previously mentioned, I entered a synthetic long stock position using options in Seabridge Gold.
As a recap, a synthetic long stock position is buying the calls and selling the puts to offset the cost the of calls. (If you don't know what calls and puts are, I suggest you read up on option trading. Options Made Easy: Your Guide to Profitable Trading
is a good book).
With $60 I was controlling $1650 worth of stocks, or about 100 shares. On Friday, or about a week later, the stock was up just over a dollar, so I sold 2/3s of the call contracts and all of the puts. On the call side, I netted a profit of $0.40 or $40/contract and on the put side I netted an additional $0.35 or $35/contract. I actually closed out all the puts and kept only 1/3rd of the calls.
If I had closed out the position entirely I would've made about $70/contract or about 116% in roughly 1 week. As it stands, since I've liquidataed most of the position, I'm now in each call contract at almost cost and I'll recognize a total net profit when I exit the calls. Currently the calls are selling for $235.
Last friday was also Triple Witching Day, (the contracts for stock index futures, stock index options and stock options all expire on the same day) and historically the week after that in June has a tendency to ended lower. Thats why I decided to close out most of my position. If the stock market does move lower, I can re-enter the position at a cheaper price. If not, then I'll still make money on my existing call options.
If the stock drops, so long as I sell the calls before they drop under $10-$15, I won't lose any money. If the stock moves significantly to the upside, the Delta will move towards parity with the stock and I then get most of the upside.
Currently I'm in a good situation. Lots of upside potential with minimal downside risk!
On another note, BHP Billiton (BHP) and Anglo American (AAUK) are hitting new highs! I love my commodity stocks.
As a recap, a synthetic long stock position is buying the calls and selling the puts to offset the cost the of calls. (If you don't know what calls and puts are, I suggest you read up on option trading. Options Made Easy: Your Guide to Profitable Trading
is a good book).With $60 I was controlling $1650 worth of stocks, or about 100 shares. On Friday, or about a week later, the stock was up just over a dollar, so I sold 2/3s of the call contracts and all of the puts. On the call side, I netted a profit of $0.40 or $40/contract and on the put side I netted an additional $0.35 or $35/contract. I actually closed out all the puts and kept only 1/3rd of the calls.
If I had closed out the position entirely I would've made about $70/contract or about 116% in roughly 1 week. As it stands, since I've liquidataed most of the position, I'm now in each call contract at almost cost and I'll recognize a total net profit when I exit the calls. Currently the calls are selling for $235.
Last friday was also Triple Witching Day, (the contracts for stock index futures, stock index options and stock options all expire on the same day) and historically the week after that in June has a tendency to ended lower. Thats why I decided to close out most of my position. If the stock market does move lower, I can re-enter the position at a cheaper price. If not, then I'll still make money on my existing call options.
If the stock drops, so long as I sell the calls before they drop under $10-$15, I won't lose any money. If the stock moves significantly to the upside, the Delta will move towards parity with the stock and I then get most of the upside.
Currently I'm in a good situation. Lots of upside potential with minimal downside risk!
On another note, BHP Billiton (BHP) and Anglo American (AAUK) are hitting new highs! I love my commodity stocks.
Personal Finance Haiku Contest
Make Your Nut is currently hosting a contest on Personal Finance Haikus. The winner gets $20 and some link love. Anyway here are my entries:
Refinance your home
Use it to pay off your debt
Brokers must eat too.
Open a brokerage account
Invest your earnings
Wall street needs your money.
The US Dollar is dropping
People have lost faith
Buy gold instead.
Starbucks coffee is expensive
Do not drink if you cannot afford.
Buy the stock instead.
Refinance your home
Use it to pay off your debt
Brokers must eat too.
Open a brokerage account
Invest your earnings
Wall street needs your money.
The US Dollar is dropping
People have lost faith
Buy gold instead.
Starbucks coffee is expensive
Do not drink if you cannot afford.
Buy the stock instead.
War On Terror Meets High Finance
For all you Ken Follett and Frederick Forsyth fans who love thrillers about global intrigue, NPR reported a very interesting story today.
In 2005, the U.S. government suspected a Macau bank of laundering North Korean funds. Under the global jurisdiction of the Patriot Act, the U.S. froze $25 million of the bank’s North Korean assets. This week, North Korea announced they want their money back, or else the country’s nuclear program will continue.
However, North Korea insists they be reimbursed through a private bank, and nobody wants to be the guy signing the check. “No bank is willing to help return the money to North Korea,” reported NPR this morning. “Banks fear helping North Korea would taint the banks in the eyes of the U.S. Treasury Department, even though the request came from the U.S. State Department.”
An unnamed Las Vegas casino may stage a buyout of Banco Delta Asia (the Macau bank that currently holds the frozen assets) in order to refund the money. And what does it gain in the transaction? An almost impossible-to-get Macau gaming license.
Macau is rapidly becoming the world's gambling capital. Gambling is illegal in Chian except for Macau, so the chinese are flocking there. According to the Pacific Asia Travel Association (PATA), Macau's tourist receipts are projected to rise from US$2.87 billion in 2003 to US$7.37 billion by 2010. Check out the Wynn Macau and the Venetian Macao to see how much they've spent on their casinos.
Maybe its time to invest Macau?
and Frederick Forsyth fans who love thrillers about global intrigue, NPR reported a very interesting story today.In 2005, the U.S. government suspected a Macau bank of laundering North Korean funds. Under the global jurisdiction of the Patriot Act, the U.S. froze $25 million of the bank’s North Korean assets. This week, North Korea announced they want their money back, or else the country’s nuclear program will continue.
However, North Korea insists they be reimbursed through a private bank, and nobody wants to be the guy signing the check. “No bank is willing to help return the money to North Korea,” reported NPR this morning. “Banks fear helping North Korea would taint the banks in the eyes of the U.S. Treasury Department, even though the request came from the U.S. State Department.”
An unnamed Las Vegas casino may stage a buyout of Banco Delta Asia (the Macau bank that currently holds the frozen assets) in order to refund the money. And what does it gain in the transaction? An almost impossible-to-get Macau gaming license.
Macau is rapidly becoming the world's gambling capital. Gambling is illegal in Chian except for Macau, so the chinese are flocking there. According to the Pacific Asia Travel Association (PATA), Macau's tourist receipts are projected to rise from US$2.87 billion in 2003 to US$7.37 billion by 2010. Check out the Wynn Macau and the Venetian Macao to see how much they've spent on their casinos.
Maybe its time to invest Macau?
Cheaper Diamonds on the Horizon?
According to this report on Bloomberg.com, Gemesis is planning on selling 1 million carats worth of man-made diamonds next year.
The major Diamond mining companies like De Beers, Anglo American and Rio are getting a little nervous. They undoubtedly come out with a marketing campaign to squeech sales of "fake" diamonds. Here's what John Teeling, founder and chairman of African Diamonds Plc. (a Dublin-based mining company in which De Beers has a stake) says.
If you meet a woman that you are going to spend the rest of your life with and have babies with, are you going to give her a diamond made in a lab in Pittsburgh or are you going to give her the real thing?Teeling doesn't seem to be worried about it. But I own shares in Anglo American (AAUK) which owns 45% of De Beers so I am!
Synthetic diamonds cost about 70% less than real ones and you need a machine (which was developed by De Beers at a cost of $17 million) to differentiate between the two.
If your fiance or wife couldn't tell the difference would you sneak in a synthetic? Maybe justify it by paying the same price but getting a rock the size of your big toe?
Too Rich To Save?
According to a study by HSBC,
I feel so sorry for them. 10% of people who make over a quarter of a million dollars a year, can't make ends meet! Thats just amazing. Maybe they should sell their fancy watches, cars and downsize to a smaller house for a while.
Or maybe not being able to make ends meet has a different meaning for rich folk. Maybe it means you can't take the $20,000/week vacation to Turtle Island in Fiji, or you're going to have to fire one of the nannies. Maybe downgrade the porsche to a more humble 7-series.
I can't comprehend how anyone without a gambling problem can't make ends meet on $250,000 income. I guess it boils down to living beyond your means.
The best way to become really rich is to save, invest and keep re-investing the gains for as long as possible. Investing only 5,000/year for 35 years at 12% will let you end up with approximately $2.5 million. If you not able to earn 12% or you don't have 35 years of working life left, you need to save more. Compounding really is the greatest asset available. If you only have 25 years to save, even if you can get 12% return, you need to save $17,000/year to retire with $2.5 million.
If you're not going to save even 10% of your $250,000 income, you're either going to retire broke or going to have to work past 65.
Being rich isn't necessarily about having money or material objects. Its about having the freedom to do whatever you like. (like Paris Hilton, only she's not rich enough to stay out of jail. For that, you need to be Michael Jackson or OJ rich!)
49% of respondents with at least $250,000 in income aren't saving more because they simply "want some spending money." In 28% of the cases for those who earn between $100,000 and $250,000, respondents say they do not save more because "something unforeseen always comes up." And in nearly one in 10 situations, people who earn $250,000 or more say they aren't even earning "enough to make ends meet as it is."
I feel so sorry for them. 10% of people who make over a quarter of a million dollars a year, can't make ends meet! Thats just amazing. Maybe they should sell their fancy watches, cars and downsize to a smaller house for a while.
Or maybe not being able to make ends meet has a different meaning for rich folk. Maybe it means you can't take the $20,000/week vacation to Turtle Island in Fiji, or you're going to have to fire one of the nannies. Maybe downgrade the porsche to a more humble 7-series.
More people who earn between $50,000 and $100,000 save consistently than people who earn between $200,000 and $250,000 per year.
I can't comprehend how anyone without a gambling problem can't make ends meet on $250,000 income. I guess it boils down to living beyond your means.
The best way to become really rich is to save, invest and keep re-investing the gains for as long as possible. Investing only 5,000/year for 35 years at 12% will let you end up with approximately $2.5 million. If you not able to earn 12% or you don't have 35 years of working life left, you need to save more. Compounding really is the greatest asset available. If you only have 25 years to save, even if you can get 12% return, you need to save $17,000/year to retire with $2.5 million.
If you're not going to save even 10% of your $250,000 income, you're either going to retire broke or going to have to work past 65.
Being rich isn't necessarily about having money or material objects. Its about having the freedom to do whatever you like. (like Paris Hilton, only she's not rich enough to stay out of jail. For that, you need to be Michael Jackson or OJ rich!)
How To Spend A Million Dollars On Gas
MoneyNing has calculated that paying $200/month on gasoline over a 45 year period totals over a million dollars.
Thats pretty depressing. But by the same train of thought, the $400 car payment you spend to drive a new car every 4 years will work out to be another $2 million over your lifetime. Add in another $200 for insurance and maintenance and thats another million, bringing your grand total to $4 million dollars just to get from one place to another!
I'm buying a bicycle tomorrow!
Thats pretty depressing. But by the same train of thought, the $400 car payment you spend to drive a new car every 4 years will work out to be another $2 million over your lifetime. Add in another $200 for insurance and maintenance and thats another million, bringing your grand total to $4 million dollars just to get from one place to another!
I'm buying a bicycle tomorrow!
Taxes Suck! (And so does Aurora Loan Services)
I hate taxes. And I hate filing them
For one I feel the government doesn't know how to properly utilize the money it gets. Unlike Australia, where the budget is in a state of constant surplus, our illiterate politicians can't add and are always running a deficit. And as a result, they always begging for more money.
Another issue is with the reporting of taxes due. As the owner of several rental properties, I get to claim the interest on the mortgage payments and the taxes I pay. The mortgage companies send out a 1098 form every year. Unfortunely they do 3 things that piss me off.
1. They keep selling the mortgages to other companies.
This means I not only have to keep track of the payments(which I automate through online bill pay), but now I get several 1098s for the same property.
2. They don't print addresses on the 1098 statements.
This means I have no fricking clue which property the statement belongs to and I have to waste time matching up the statements with the properties based on 9 digit account numbers. (really irritating when you have 6 times as many statements as you do properties!)
3. They make stupid mistakes.
Occasionally, they'll forget to include the amount of taxes paid or insurance paid. If you overlook that, you're out that deduction. Yes, it looks like you made more money but thats a BAD thing at tax time!
If my Adjusted Gross Income[thats income after deductions) isnt' under the federal guidelines for the poverty level, I'm pretty upset. And now the wife had to go get a job which totally pushed us out of the poverty level! I told her if our tax bracket went too high, I'd quit my job in protest! (Of course, that didn't go down too well).
And whats up with the schedule D filling. The government wants me to file every single damn trade I placed??? Well ok, they don't trust us to accurately report it, whcih is fine since we don't trust the government to tell us the truth either. But why the hell can't the brokerage firms provide a simple spreadsheet of the transactions? (without charging for it?). Its all computer-based trading and they all have the records in their databases.
I actually found out that Interactive Brokers (the company with the worst interface and lousiest customer service, but cheapest commissions) actually provides a prepared schedule D!!! Thats awfully nice of them.
Especially sinceDatek, Ameritrade, TDAmeritrade charges 10 times the commission and won't provide it. Infact they got the 1099 wrong the first 3 times!
Anyway, I was up until 4:30 am doing my taxes. One of the mortgage companies fraudulently decided that my 5 year ARM was a 2 year ARM just because the date printed on the loan docs was wrong. The fact that they never offered a 2/1 ARM doesn't matter. Aurora Loans got to screw me and the truth can be damned! Anyway, my new rate is now 10.3% on the 1st loan, and 9.5% on the 2nd loan!
Aurora also wanted nearly $10,000 to refinance a $250,000 loan! I went to Countrywide instead but they need to see my 2006 tax returns to fund the loan. Hence the rush to get the paperwork all done so my CPA can file it.
Anyway, thats it for this friday's edition of The Weekly Rant!
For one I feel the government doesn't know how to properly utilize the money it gets. Unlike Australia, where the budget is in a state of constant surplus, our illiterate politicians can't add and are always running a deficit. And as a result, they always begging for more money.
Another issue is with the reporting of taxes due. As the owner of several rental properties, I get to claim the interest on the mortgage payments and the taxes I pay. The mortgage companies send out a 1098 form every year. Unfortunely they do 3 things that piss me off.
1. They keep selling the mortgages to other companies.
This means I not only have to keep track of the payments(which I automate through online bill pay), but now I get several 1098s for the same property.
2. They don't print addresses on the 1098 statements.
This means I have no fricking clue which property the statement belongs to and I have to waste time matching up the statements with the properties based on 9 digit account numbers. (really irritating when you have 6 times as many statements as you do properties!)
3. They make stupid mistakes.
Occasionally, they'll forget to include the amount of taxes paid or insurance paid. If you overlook that, you're out that deduction. Yes, it looks like you made more money but thats a BAD thing at tax time!
If my Adjusted Gross Income[thats income after deductions) isnt' under the federal guidelines for the poverty level, I'm pretty upset. And now the wife had to go get a job which totally pushed us out of the poverty level! I told her if our tax bracket went too high, I'd quit my job in protest! (Of course, that didn't go down too well).
And whats up with the schedule D filling. The government wants me to file every single damn trade I placed??? Well ok, they don't trust us to accurately report it, whcih is fine since we don't trust the government to tell us the truth either. But why the hell can't the brokerage firms provide a simple spreadsheet of the transactions? (without charging for it?). Its all computer-based trading and they all have the records in their databases.
I actually found out that Interactive Brokers (the company with the worst interface and lousiest customer service, but cheapest commissions) actually provides a prepared schedule D!!! Thats awfully nice of them.
Especially since
Anyway, I was up until 4:30 am doing my taxes. One of the mortgage companies fraudulently decided that my 5 year ARM was a 2 year ARM just because the date printed on the loan docs was wrong. The fact that they never offered a 2/1 ARM doesn't matter. Aurora Loans got to screw me and the truth can be damned! Anyway, my new rate is now 10.3% on the 1st loan, and 9.5% on the 2nd loan!
Aurora also wanted nearly $10,000 to refinance a $250,000 loan! I went to Countrywide instead but they need to see my 2006 tax returns to fund the loan. Hence the rush to get the paperwork all done so my CPA can file it.
Anyway, thats it for this friday's edition of The Weekly Rant!
Microsoft's New Surface Computer
If you thought the technology in "Minority Report" was far-fetched, you were mistaken. Its actually a lot closer than you think.
Check out this Popular Mechanics video of Microsoft's new multi-touch point, multi-user computing surface computer. If Microsoft has its way, 'ubiquitous computing surfaces' will become pretty common in a few years. Bloody impressive!
Synthetic Long Johns?
Even though my CFC and WCI option strategies backfired, my JRCC puts did quite well. Enboldened by that success, I decided to try some more option trading.
I've been keeping my eye on Seabridge Gold (SA) for a few months now. A few months ago, I sold some naked puts on SA hoping that it wouldn't drop more than $2 and I would get to keep the premium when the options expired worthless. It worked out exactly as planned and I made a few hundred bucks on the trade.
I'm still bullish on the stock and yesterday it gapped up on very high volume with absolutely no news. The options jumped too, but late in the evening the stock trended back down and filled the gap. The options dropped as well and I bought some November 17.5 calls for 1.95/contract. I also sold an equivalent number of November 15 puts for $1.35/contract bringing my net price to $60 per 100 shares.
If SA continues its rise, I should make some decent money. If it drops a few bucks, I'll actually lose money, but I'll probably have lost less than if I had bought the stock outright.
Buying a call and selling a put is called a synthetic stock position (technically, synthetic long stock) because your position mimics the behavior of the underlying stock so its like you're artificially creating a stock. Its a cheap way to enter a position. Its not risk-free or a low-risk position but a simply a way to leverage your investment (and thus amplify your winnings or losses).
For an out of pocket investment of $60, I'm controlling $1650 worth of stock. The Delta of the November 17.5 call is 0.52, which means for every $1 move in the stock the option should move $0.52 in the same direction. As the price moves closer to the strike price of 17.50 and the time till expiration decrease, the Delta should increase. For the June 17.5 call, its 0.927 so it closely mimics the behavior of the stock.
If the stock moves $1, based on the Delta of 0.5, the option should (theoretically) move up $0.5, which means my $1.95 call option is up 25%. The put option will similarly lose value and I can close out at roughly a 30-45% profit. (Yes, this is a gross simplification. I'm not going to explain further because its 4 am and I haven't slept for 2 nights - more on that later).
I'll let you now how this trade works out.
NOTE: Do not blindly copy this trade. If you lose money, I take no responsibility whatsoever. (But if you make money, please send me a cholocate chip cookie!).
I've been keeping my eye on Seabridge Gold (SA) for a few months now. A few months ago, I sold some naked puts on SA hoping that it wouldn't drop more than $2 and I would get to keep the premium when the options expired worthless. It worked out exactly as planned and I made a few hundred bucks on the trade.
I'm still bullish on the stock and yesterday it gapped up on very high volume with absolutely no news. The options jumped too, but late in the evening the stock trended back down and filled the gap. The options dropped as well and I bought some November 17.5 calls for 1.95/contract. I also sold an equivalent number of November 15 puts for $1.35/contract bringing my net price to $60 per 100 shares.
If SA continues its rise, I should make some decent money. If it drops a few bucks, I'll actually lose money, but I'll probably have lost less than if I had bought the stock outright.
Buying a call and selling a put is called a synthetic stock position (technically, synthetic long stock) because your position mimics the behavior of the underlying stock so its like you're artificially creating a stock. Its a cheap way to enter a position. Its not risk-free or a low-risk position but a simply a way to leverage your investment (and thus amplify your winnings or losses).
For an out of pocket investment of $60, I'm controlling $1650 worth of stock. The Delta of the November 17.5 call is 0.52, which means for every $1 move in the stock the option should move $0.52 in the same direction. As the price moves closer to the strike price of 17.50 and the time till expiration decrease, the Delta should increase. For the June 17.5 call, its 0.927 so it closely mimics the behavior of the stock.
If the stock moves $1, based on the Delta of 0.5, the option should (theoretically) move up $0.5, which means my $1.95 call option is up 25%. The put option will similarly lose value and I can close out at roughly a 30-45% profit. (Yes, this is a gross simplification. I'm not going to explain further because its 4 am and I haven't slept for 2 nights - more on that later).
I'll let you now how this trade works out.
NOTE: Do not blindly copy this trade. If you lose money, I take no responsibility whatsoever. (But if you make money, please send me a cholocate chip cookie!).
Starting An Ecommerce Site
If you've ever thought of starting an ecommerce site but don't know how, a good place to start your research is over at Net Business Blog.
Check out the post on
The Golden Rules of Ecommerce where the author describes his experiences at starting an online memory store.
Its a long post but some of the main points are:
1. Love your customers
2. Implement Just-In-Time inventory management
3. Control your marketing budget, especially for print media
4. Learn about marketing and don't spend too much on it if you can't genuinely track the results
5. Have an exit strategy and know what sort of business you're getting into up front. (whether you're buying a low-paying job or a scalable business).
And if you want more info on starting an Ecommerce Site, you can check out the real secrets here.
Check out the post on
The Golden Rules of Ecommerce where the author describes his experiences at starting an online memory store.
Its a long post but some of the main points are:
1. Love your customers
2. Implement Just-In-Time inventory management
3. Control your marketing budget, especially for print media
4. Learn about marketing and don't spend too much on it if you can't genuinely track the results
5. Have an exit strategy and know what sort of business you're getting into up front. (whether you're buying a low-paying job or a scalable business).
And if you want more info on starting an Ecommerce Site, you can check out the real secrets here.
Taking The Cleaners To The Cleaners
The Judge who sued an old Korean couple for $67 million over a pair of lost trousers has now reduced his demand to only $45 million. I guess he's had a change of heart and thinks $67 million might be a bit too greedy!
This nuisance lawsuit is costing the poor owners thousands of dollars in legal fees. They did offer him as much as $12,000 as compensation towards the loss of his beloved pants, but it looks like Judge Pearson is more interested in harassing them. Since he's representing himself, it doesn't cost him a dime to keep pressing ahead with his lawsuit.
The owners have a website and are accepting donations to help defray the cost of this ridiculous lawsuit. If you feel they've been unjustly victimized, you can send your donation to the Custom Cleaners Defense Fund.
This nuisance lawsuit is costing the poor owners thousands of dollars in legal fees. They did offer him as much as $12,000 as compensation towards the loss of his beloved pants, but it looks like Judge Pearson is more interested in harassing them. Since he's representing himself, it doesn't cost him a dime to keep pressing ahead with his lawsuit.
The owners have a website and are accepting donations to help defray the cost of this ridiculous lawsuit. If you feel they've been unjustly victimized, you can send your donation to the Custom Cleaners Defense Fund.
Shanghai Stock Market Finally Corrects
About 2 weeks ago, I mentioned that the Shanghai Stock market was likely to correct.
Well today is the 3rd straight day that the Shagnhai market has traded down. So far its down 20% from its peak but its still up 28% for the year.
The Chinese government thought that the markets were getting ahead of themselves and had implemented a large tax hike to help cool down the "irrational exuberance". Seems like they got what they wanted and should be quite pleased.
When the markets dropped 8.8% on 27th February, it triggered a drop in global markets. This time though, its all alone.
Apparently, 1000 out of the 1,400 class-A stocks dropped the daily maximum allowed 10%! If they didn't have controls in place to limit the drop, they might have dropped a lot more. Because of this, I think the market might continue to drop for a few more days.
China economy is unlikely to suffer because of this market correction because its dependent on exports and not financial markets.
Hopefully it'll create some good investment opportunities!
Learning From The Frogs
Here's a riddle:
How many Frenchmen does it take to defend Paris ?
Don't know, its never been done!
Well, Bill Maher is in a more generous mood than I am. Check out his very accurate and very funny commentary on what our politicians could learn from the French.
Is the US Bankrupt?
According to the USA TODAY, dated 6/1/07,
Definitely sounds like the government is already bankrupt. Of course, it can always print more money, so it'll never really be bankrupt. The only disadvantage is that the US Dollar will fall in value against other currencies and against gold and other global commodities. Its already fallen signficantly against european currencies and also other currencies like the Indian Rupee and Australian Dollar. And the Canadian Loonie is the strongest its been in 30 years! Not a very comforting trend!
The federal government recorded a $1.3 trillion loss last year - far more than the official $248 billion deficit - when corporate-style accounting standards are used, a USA TODAY analysis shows.
The loss reflects a continued deterioration in the finances of Social Security and government retirement programs for civil servants and military personnel. The loss - equal to $11,434 per household - is more than Americans paid in income taxes in 2006.
"We're on an unsustainable path and doing a great disservice to future generations," says Chris Chocola, a former Republican member of Congress from Indiana and corporate chief executive who is pushing for more accurate federal accounting.
Modern accounting requires that corporations, state governments and local governments count expenses immediately when a transaction occurs, even if the payment will be made later.
The federal government does not follow the rule, so promises for Social Security and Medicare don't show up when the government reports its financial condition.
Definitely sounds like the government is already bankrupt. Of course, it can always print more money, so it'll never really be bankrupt. The only disadvantage is that the US Dollar will fall in value against other currencies and against gold and other global commodities. Its already fallen signficantly against european currencies and also other currencies like the Indian Rupee and Australian Dollar. And the Canadian Loonie is the strongest its been in 30 years! Not a very comforting trend!
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